UNDERSTANDING BARRIERS AND EVALUATING PATHWAYS TO …
Transcript of UNDERSTANDING BARRIERS AND EVALUATING PATHWAYS TO …
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UNDERSTANDING BARRIERS AND EVALUATING PATHWAYS TO THE LONG-
TERM VIABILITY OF FEDERALLY FUNDED ENERGY EFFICIENCY
PROGRAMS
BY
KATHLEEN E. FRASER
DR. DANIEL VERMEER, ADVISOR
MAY 2012
Masters project submitted in partial fulfillment of the
requirements for the Master of Environmental Management degree
in the Nicholas School of the Environment of
Duke University
2012
08 Fall
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ABSTRACT In 2009, the U.S. Department of Energy allocated $508 million to the Better Buildings
Neighborhood Program (BBP), a competitive grant program to spur a private energy
efficiency retrofit market in the residential and commercial buildings sectors of the U.S.
economy. The BBP was funded through the Obama administration’s American Recovery
and Reinvestment Act, with the goal of creating jobs and impacting the economy through
clean energy investments.
This report investigates one of the BBP grant recipient partners, the Southeast Energy
Efficiency Alliance (SEEA), and the unique challenges of energy efficiency deployment
in the Southeast. The analysis provides SEEA’s program managers with a framework to
evaluate options for the long-term viability of their energy efficiency retrofit programs
post-federal funding in 2013. These options were designed as a deliverable to SEEA in
the form of a guidebook, which was completed in March 2012. Selected sections of the
guidebook can be found in the Appendix and will be referenced throughout the report.
Additionally, this report will consider the current barriers that SEEA’s programs are
facing and how they are impeding the organization’s likelihood of meeting goal criteria
within the mandated time frame. The final recommendations will include programmatic
changes that SEEA can adopt over the next year and a half to overcome both the short-
term and long-term challenges of energy efficiency retrofit programs in the Southeast.
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Acknowledgements This report would not have been possible without the incredible feedback from a whole army of experts and practitioners that have gone out of their way to help me compile this research over the past year. I cannot thank them enough for their collaboration throughout this process. Any unintended errors found in this report are mine and mine alone. My sincere thanks goes out to my academic advisors and professional colleagues: Dan Vermeer, Fuqua School of Business/EDGE at Duke University Tamara Jones, Director of Municipal Energy Efficiency Programs, SEEA Glenn Barnes, Senior Project Director, UNC EFC Steve Morgan, President, Clean Energy Solutions, Inc Ian Fischer, Vice President, Clean Energy Solutions, Inc Dave Dayton, CEO, Clean Energy Solutions, Inc Nora Barger, Clean Energy Solutions, Inc Jeff Hughes, Director, UNC EFC Rebecca Foster, EVIC Merrian Fuller, LBNL Jackie Dadakis, Clean Energy Solutions, Inc Leslie Holthoff, NEXT STEP Bryan Cordell, Sustainability Institute Ben Leigh, Sustainability Institute Luke Gebhart, Mayor’s Office of Environment and Sustainability, Nashville, TN Bruce Doueck, JEA, Jacksonville, FL Bill Greenleaf, Richmond Energy Alliance Jen Clymer, ICF International Mitch Brown, DOE Brian Brainerd, SEEA Jerrel Gustafson, CleaRESULT Cynthia Adams, LEAP Travis Bradford, Visiting Professor, Fuqua School of Business at Duke University Finally, this Master’s Project would not have been possible without the constant support and encouragement from dear friends and family. Thank you for everything: Allison Smykal, Kirsten Hagfors, Maria Ellis, Dave Millar, Corinne Melville, Courtney Lareau, Mom and especially, Dad.
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Contents Introduction………………………………………………………………………...........p.6 Genesis of Report………………………………………………………………..p.7 Definitions…………………………………………………………………….…p.7 Economic and Environmental Opportunities of Energy Efficiency Investments…….…p.9 Barriers to Energy Efficiency Implementation……………………………………...…p.12 The Opportunity and Barriers to Energy Efficiency in the Southeast………………....p.14 Government’s role in Energy Efficiency………………………………………............p.16 DOE’s Better Buildings Neighborhood Program………………………………...........p.17 Southeast Energy Efficiency Alliance (SEEA) …………………………………..........p.19
SEEA is Awarded BBP Grant Funding…………………………...……...........p.20 The Role of the Local Energy Alliance………………………………..............p.22 The Challenge of the Local Energy Alliance………………………………......p.25
Pathways for Local Energy Alliances to Thrive Post-Grant Funding…………............p.27 I. Earned Revenue……………………………………………………...............p.28 Contractor/Vendor Fees………………………………………..............p.29 Homeowner/Owner’s Agent Fees………………………………...........p.30 Products and Services for Do-It-Yourself Customers……………........p.32 II. Contract Services…………………………….………………………...........p.32 III. Innovative Financing Tools…………………..………………………........p.33 Feasibility of Pathways for SEEA’s Local Energy Alliance in the Context of Current Challenges………………………………………………………………………...........p.35 Recommendations to SEEA………………………………………………....................p.38 Conclusions………………………………………………………………..……...........p.44 Glossary…………………………………………………………………………..........p.43 Appendix……………………………………………………………….………...........p. 44 Works Cited……………………………………………………………….……...........p.54 References………………………………………………………………………...........p.56
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Figures and Tables Figure 1: Lawrence Berkeley National Lab: Energy Flow Chart, 2011……….............p.10 Figure 2: McKinsey’s greenhouse gas abatement cost curve ……..………...…...........p.11 Figure 3: Lazard’s Levelized Cost of Energy calculations …………...………….........p.12 Figure 4: Per Capita Energy Consumption by Region …………..……..………...........p.15 Figure 5: DOE recovery awards through ARRA ……………….……………..............p.17 Figure 6: Better Buildings Neighborhood Program map:………………………….......p.18 Figure 7: Better Buildings Neighborhood Program goals …………….………...........p.19 Figure 8: SEEA grant distribution funds to Local Energy Alliances …….....................p.21 Figure 9: Charlottesville, VA's Local Energy Alliance Program (LEAP)……………..p.26 Figure 10: Milestones for grant recipients of the Better Buildings Neighborhood Program……………………………………………………………...………................p.36 Table 1: Core Competencies of a Local Energy Alliance ………………………..........p.24 Table 2: Pathways for Local Energy Alliances post-ARRA funding ………..……......p.28 Table 3: SEEA Program Benchmarks………………………………………..…...........p.35
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Introduction:
The U.S. federal government signed the American Recovery and Reinvestment Act
(ARRA) into law in February 2009, in response to the severe economic recession of the
late 2000’s. The rationale for its formulation was to stimulate the economy by providing
nearly $746 billion in the form of tax cuts and benefits, entitlement programs, contracts,
loans and grants.i ARRA’s goals were to create jobs and encourage long-term growth in
the U.S. economy. During this same period, the global community and the United States
in particular, became more aware of the environmental and political pressures that were
mounting regarding energy security and excessive consumption in an era of high energy
prices.
In late 2009, ARRA approved $508 million to the Department of Energy (DOE) to
administer the Better Buildings Neighborhood Program (BBP). This competitive grant
program was meant to spur economic growth by leveraging private capital, creating jobs
and producing energy savings between 15 to 30 percent through energy efficiency retrofit
projects. The Southeast Energy Efficiency Alliance (SEEA) is a non-profit organization
that received a $20 million grant through this program to launch thirteen “local energy
alliances” throughout the Southeast. Between 2010 and 2013, SEEA must utilize these
funds to complete 10,000 residential and commercial energy efficiency retrofits. SEEA’s
long-term goals are similar to that of the BBP: stimulate the local economy and create a
lasting retrofit market in the Southeast region. In order to achieve these broader economic
goals, SEEA’s local energy alliances must continue their programs beyond the three-year
federal grant period. Thus, this report will explore the options for long-term viability in
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the context of the opportunities and challenges that exist in the residential and
commercial energy efficiency retrofit market, specifically in the Southeast.
Genesis of Report
The author of this report first began working on this research as SEEA’s summer intern
in 2011. Her task was to research existing and emerging business plans that the local
energy alliances could potentially adopt in order to expand the market for energy
efficiency retrofits over the long-term. The result of the internship was a guidebook that
she co-authored with Glenn Barnes, Senior Project Director at UNC-Chapel Hill’s
Environmental Finance Center called: The Future of Better Buildings Neighborhood
Program’s Local Energy Alliances: Guidebook for Financial Sustainability Post-ARRA
Funding. The guidebook, referenced throughout the report and annotated in the
Appendix, includes traditional fee-for-services business models as well as partnership
opportunities that will ensure the long-term viability of SEEA’s local energy alliances.
SEEA used the guidebook as a training tool for their local energy alliance program
managers at their annual conference in March 2012. This report goes a step further than
the guidebook by researching the broader energy efficiency retrofit industry to provide a
more nuanced recommendation to SEEA that considers both the current and future
challenges that threaten the local energy alliance’s success.
Definitions
As a common starting point, this report will break down the phrases “energy efficiency”
and “retrofit projects” in turn, before delving into the specifics of the federally funded
programs in question. The term “energy efficiency” is a broad term that incorporates the
concept of doing more with less. It is similar, but not identical, to conservation, which
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simply refers to consuming less energy. Nevertheless, the two terms are often used
interchangeably, as they go hand-in-hand.
The concept of energy efficiency is not new, however, it is ripe for a rebirth as a
cornerstone of energy policy and practice. Several decades ago, Amory Lovins, a
thought-leader in environmental and energy issues, coined the term “negawatt” as a way
to conceptualize an “unneeded megawatt due to efficiency gains” as an energy resource,
not as a cost.ii In a climate of increasing concern with the environmental impacts of
energy consumption, security of fuel sources and rising energy costs, the negawatts
associated with energy efficiency are now seen as the cheapest, fastest and easiest
solution to address these issues. Identifying the opportunities for negawatts throughout
the energy value chain is the most logical way to begin to rein in the environmental,
economic, and geopolitical costs and risks associated with the present day quagmire of
balancing these concerns. This report will discuss these opportunities in more detail in the
next section.
The term “retrofit” refers to upgrading existing building structures to be more energy
efficient. In the context of this report, “retrofit” or “energy upgrade” will refer to the
residential and commercial sectors of the economy. This includes homes, multi-family
housing units, and small and medium-sized businesses. While the type of building may
vary, retrofits are typically targeting similar problem areas to improve energy efficiency.
To begin, the building will need to be assessed by a professional energy auditor to
identify these problem areas, which tend to be areas where air leaks are most common:
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the crawlspace, attic, around windows, doors and electrical outlets. Retrofit projects
typically include: sealing air ducts, installing new and more efficient HVAC heating and
cooling systems, replacing attic insulation, installing new windows, replacing appliances
and lighting with more efficient models. Merely replacing an HVAC system without
considering the losses through a home’s attic, however, will not capture the potential
savings that the new HVAC system offers. Thus, the whole-home or building-envelope
approach is the preferred method both from an energy savings and environmental benefits
perspective. A “whole-home retrofit” will first analyze the building’s theoretical potential
for energy savings and then implement several of these projects to maximize energy
savings. A whole-home energy retrofit can typically reduce a home or buildings energy
needs by 15-30 percent. While the Department of Energy (DOE) and Environmental
Protection Agency (EPA) have been successful at launching public-private partnerships
for energy efficient appliances through the Energy STAR program, both agencies are still
working to identify best practices and incentives for whole-home energy retrofits.
Economic and Environmental Opportunities of Energy Efficiency Investments
The opportunities for efficiency gains can be realized at all points throughout the energy
value chain. Current literature on this topic points to end-use energy gains in the
industrial, commercial, residential and transportation sectors. According to Lawrence
Livermore National Lab’s Energy Flowchartiii released in 2011, roughly 55 percent of the
primary energy inputs in the United States are lost through the process of generation or
refining, transmission, distribution and end-use (Figure 1). “End-users,” defined by
transportation, industrial, commercial and residential sectors of the economy, are
responsible for over half of the system loses. Incentivizing energy retrofits for home and
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building owners, combined with behavioral changes for energy conservation will have
upstream impacts that ultimately reduce the primary energy needs of the U.S.
Figure 1: Lawrence Berkeley National Lab: Energy Flow Chart, 2011iv
Significant economic and environmental benefits are achievable by reducing primary
energy needs through end-use energy efficiency measures. A report from McKinsey, a
consulting firm, suggests that an aggressive, but feasible energy efficiency program in
this country would reduce end-use energy consumption by roughly nine percent by 2020,
reducing primary energy needs by about 18 percent. If fully executed, this could
potentially save $1.2 trillion and abate 1.1 gigatons of greenhouse gas emissions
annually.v
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Additionally, investing in energy efficiency measures is the most cost-effective strategy
for mitigating greenhouse gas (GHG) emissions. McKinsey has done extensive research
on this subject and found that around 40 percent of the opportunities for GHG reduction
have negative costs, meaning they generate net returns for the investor.vi Figure 2 shows
that nearly all of the negative cost greenhouse gas abatement strategies are investments in
energy efficiency in the residential and commercial sectors. This confirms Amory
Lovins’ theory that the negawatt should not be thought of as a cost, but rather an
opportunity to “profit” through the avoided costs associated from an investment in energy
efficiency.
Figure 2: McKinsey’s greenhouse gas abatement cost curvevii
Likewise, when compared to other energy resources that do not produce GHGs such as
solar thermal water heaters, energy efficiency can be thought of as the cheapest energy
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“resource.” Lazard, an investment bank, has done an extensive study on this topic,
calculating the levelized cost of energy (LCOE) for several energy resources. As shown
in Figure 3, Lazard concludes that energy efficient technologies are indeed the low-
hanging fruit in reducing energy costs.viii The LCOE, a common metric for cost
comparison, takes into account the overnight capital costs of building a particular plant,
fuel costs, operations and maintenance costs and cost of capital for the life of the plant to
determine on a dollar per megawatt basis the cost of providing that source of electricity.
To investors and building owners alike, this should signal that energy efficiency
investments are a “no-brainer” to reducing costs. To policy-makers that are concerned
with climate change and reducing greenhouse gas emissions, energy efficiency should be
thought of as the most cost-effective way towards achieving carbon neutrality.
Figure 3: Lazard’s Levelized Cost of Energy calculations; Energy efficiency comes in at the least expensiveix
Barriers to Energy Efficiency Implementation
If the economic and environmental benefits of energy efficiency investments are as
encouraging as the research suggests, then why are more home and building owners not
seeking comprehensive energy retrofits? The barriers to implementing energy efficiency
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for existing homes and buildings have been widely researched and can be boiled down to
three broad categories: knowledge gaps, unclear economics and a lack of regulatory
mandates or incentives.
While there is strong research to indicate the potential for environmental and economic
benefits of investing in energy efficiency, this information has not been well
communicated to the general public. For the population segment that may have heard of
the potential benefits, there remains a strong skepticism that the cost savings will justify
the investment, as the payback period of some investments can range from a few years to
over a decade. Finally, the decision to retrofit a home or building may not be an urgent
concern, as many Americans still prefer to invest in aesthetic retrofits that will increase
the resale value of the asset.
Modeling energy and costs savings of energy efficiency retrofits is still very much in its
infancy. A home or building’s theoretical potential for savings may be in the 25-30
percent range; however, energy savings depends on how the individuals behave and
interact with their energy usage. The classic Jevons effect in behavioral economic
literature points out that as resources become more efficient, the people tends to use them
more, thus negating potential net energy savings. A common example of this is
purchasing a new Energy STAR refrigerator and keeping the old, inefficient refrigerator
in the garage. Furthermore, a complete home or building energy retrofit may costs
thousands or tens of thousands of dollars and without a guaranteed payback period, it is
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understandable that the risk associated with the return on investment is not a catalyst for
this industry.
Finally, public utility commissions around the county have taken limited interest in
mandating electric and gas utilities to incentivize their customers to conserve electricity
through energy efficiency measures.
The Opportunity and Barriers to Energy Efficiency in the Southeast The southeastern region of the United States, the “Southeast,”1 has great potential for
energy efficiency gains, however it also faces distinct challenges that have inhibited
efficiency investments. The potential in this region is clear: the Southeast consumes the
most energy per capita of any other region, as shown in Figure 4, thus has the most to
gain from energy efficiency measures.x Moreover, in an area with comparatively cheap
retail electricity rates, perhaps it is not surprising that the region also has the lowest
investment in energy efficiency per capita.xi The Southeast also contains some of the
fastest growing population centers in the country, putting further pressure on utilities to
meet increasing demand for electricity. According to the Federal Energy Regulatory
Commission (FERC), electricity consumption in the southeast is projected to grow 45
percent between 2000 and 2020.xii The region is ripe for investing in energy efficiency;
however, there are distinct barriers that make these investments challenging. These
barriers affect the underlying business model of the energy retrofit programs that the
Southeast Energy Efficiency Alliance is promoting and are important to highlight before
1 “Southeast” is defined throughout this report as: Virginia, Tennessee, North Carolina, South
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discussing the programmatic challenges that this report will focus on in the following
sections.
Figure 4: Per Capita Energy Consumption by Region (kWh)xiii
In addition to the challenges mentioned in the previous section that relate to energy
efficiency retrofits globally, the Southeast had two additional hurdles: cheap electricity
and limited decoupling in the electricity markets. The region owes much of its economic
development to the availability of cheap electricity rates, however, the lower utility bills
in this region increase the payback period on energy efficiency retrofits, thus decreasing
the attractiveness of retrofits to a home or building owner. Moreover, electric utility
energy efficiency programs tend to be small and poorly marketed in the Southeast. Public
utility commissions in the region have mandated that utilities will be compensated for the
sale of electricity, thus a utility has little incentive to implement programs that will erode
their business model. For the utilities that do offer rebates and other incentive programs
for energy efficiency, they have been met with limited demand on the part of ratepayers,
likely due to inexpensive electricity prices. In these “chicken-or-egg” scenarios there is a
place for public policy to catalyze a behavior or a market until it can thrive on its own. In
the next section, this report will discuss the role of the federal government in overcoming
the challenges to the energy efficiency retrofit market in the United States.
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Government’s Role in Energy Efficiency
Since the oil embargo of the 1970s, the U.S. government has taken a strong interest in
energy security and alternative energy sources, including energy efficiency, as a means to
reduce fuel dependency. In the 1990s, the Environmental Protection Agency (EPA)
announced the Energy STAR program, a voluntary public-private partnership initiative to
encourage the manufacturing of energy efficient products for the U.S. market. More
recently, the American Recovery and Reinvestment Act (ARRA), has invested $90
billion to develop a clean energy economy. The Department of Energy (DOE) received
$35.2 billion of these funds to allocate for clean energy investments. Energy efficiency
projects received $11 billion, the largest slice of this share, to develop the technologies
and programs that will enable the United States to become more energy independent and
a leader in clean energy industries. Figure 5 shows the breakdown of the funds allocated
to the DOE from ARRA. According to a recent report released by the DOE, energy
efficiency is referenced as a key component of the government’s strategy that will secure
the country’s competitiveness.xiv
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Figure 5: DOE recovery awards through ARRA, $11 billion allocated for energy efficiencyxv
DOE’s Better Buildings Neighborhood Program
One of the several initiatives that DOE launched to invest in the clean energy economy
was the Better Buildings Neighborhood Program (BBP). In 2009, DOE allocated $508
million to create the BBP, a competitive grant program, with the goal of driving a market
transformation for energy efficiency in the U.S.xvi The grant funding was meant to spur a
private market for energy efficiency in homes and buildings by leveraging private capital,
creating jobs, and producing energy savings between 15-30 percent.
Vice President Joe Biden announced the program in response to the recommendations
proposed by the White House Council on Environmental Quality (CEQ). The CEQ
report, “Recovery through Retrofit,” outlined key barriers to scaling energy efficiency
$11B: Energy EfHiciency
ARRA invests over $35 Billion in the Clean Energy Economy
Carbon Capture and Storage Transportation
Modernizing the Grid Science and Innovation Renewable Energy Environmental Clean up Energy EfHiciency
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upgrades in the U.S. including: access to information, access to financing and access to
skilled workers.xvii The Better Buildings Neighborhood Program seeks to overcome these
barriers by partnering with 41 programs around the country to experiment and determine
best practices for effective models of retrofit programs. Figure 6 shows a map of these
partner programs, which include municipalities, non-profit organizations and private
businesses. Funding for the partner programs comes primarily from the Energy
Efficiency and Conservation Block Grant (EECBG) Program and the State Energy
Program (SEP), which have contributed $482 million and $26 million to BBP,
respectively.xviii
Figure 6: Better Buildings Neighborhood Program: 41 partners around the United Statesxix
BBP’s main purpose is to develop long-lasting energy efficiency retrofit programs using
federal dollars as seed-capital for these organizations and businesses to thrive. By 2013,
the program’s goal is to upgrade more than 100,000 homes and buildings, achieving 15-
30 percent energy savings. This should save consumers about $65 million per year on
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energy bills. Figure 7 shows the six major goals of the BBP that drive its central mission
to create a robust energy efficiency retrofit industry in the United States. The next section
of this report will introduce the Southeast Energy Efficiency Alliance (SEEA), a grant
recipient of the BBP. The rest of this report will focus on SEEA and their unique
challenges to accomplish the BBP goals while planning for the long-term viability of
their programs beyond federal grant funding.
Figure 7: Better Buildings Neighborhood Program goals xx
Southeast Energy Efficiency Alliance
The Southeast Energy Efficiency Alliance (SEEA) was incorporated as a 501-(c)(3) in
2007 to promote energy efficiency programs and policies in the southeastern region of
the U.S. Headquartered in Atlanta, GA, SEEA is a subsidiary of the Alliance to Save
Energy, based in Washington, D.C. SEEA’s mission is to “promote energy efficiency for
Create a robust industry for energy efHiciency retroHits
> 100,000 residential
and commercial retroHits
20% reduction in cost of program delivery
$65m/yr savings on energy bills
30,000 jobs
Leverage > $3B in
additional resources
15% to 30% energy savings
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a cleaner environment, a more prosperous economy and a higher quality of life in the
Southeastern region of the US.”xxi It has set four major goals to achieve these results:
• Position energy efficiency as a viable tool for strengthening the regional economy
and protecting the environment.
• Promote energy efficiency to increase electric reliability.
• Empower consumers at all income levels through education on the benefits of
energy efficiency, including energy savings and quality of life.
• Promote the development of a vibrant energy services industry throughout the
Southeast, and growing markets for energy efficient products.xxii
SEEA is Awarded BBP Grant Funding Given the BBP goals mentioned above, SEEA was well positioned to apply for and be
awarded a $20 million grant from the Better Buildings Neighborhood Program to build or
expand thirteen separate energy efficiency retrofit programs in eight southeastern states
and the U.S. Virgin Islands. Figures 8 shows the geographic range of programs
throughout the region. SEEA has branded the thirteen programs under the name SEEA
WISE (Worthwhile Investments Save Energy), although many programs have created
their own logo to promote their individual programs.xxiii The term “local energy alliance”
or “LEA” has been used to describe these programs in the SEEA network and more
generally in the Better Buildings Neighborhood Program.
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Figure 8: SEEA grant distribution funds to Local Energy Alliances (LEAs) in the blue shaded states (does not include Virgin Islands)xxiv
SEEA’s role as the administrator for the BBP is to provide resources for program design,
implementation, workforce development and technical support to the LEAs so that each
program contributes towards the overarching BBP goals. SEEA’s thirteen programs have
set a goal to complete approximately 10,000 home and building energy retrofits over the
three-year grant period, or by 2013.xxv SEEA seeks to foster each local energy alliance’s
success in transforming the market for energy efficiency in the southeast, as well as pave
the way for sustainable funding sources for these programs beyond the BBP grant period.
Each local energy alliance in SEEA’s portfolio has pursued a unique program design in
their first year and has experimented with various rebate and incentive programs. From
neighborhood energy challenges to free smart-meters that provide real-time data to
homeowners, LEAs have tried several methods to engage their communities. LEAs so far
have emerged as community-based nonprofit organizations, as well as spin offs of local
mayor’s offices, city council initiatives, or even utility programs. SEEA’s ultimate vision,
however, is that the programs converge towards a more streamlined not-for-profit, “local
energy alliance” model. This LEA model, as a 501-(c)(3), will remain true to its mission
to drive a private market for energy efficiency and meet the stated energy savings goals
in compliance with the Better Buildings Neighborhood Program. However, as a nonprofit
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organization, the LEA will have the flexibility of raising capital through a variety of
sources to achieve this goal. A local energy alliance may utilize traditional business
models to generate revenue, partner with local utilities to administer energy efficiency
programs, and/or raise capital from local, state and federal government, as well as
through private foundation grants. The next section of this report will explain the role of a
local energy alliance and then outline options and guiding questions for LEAs to consider
in determining the long-term financial sustainability strategy of their organization.
The Role of the Local Energy Alliance
Energy efficiency, like other energy resources, can be broken into global and local
challenges. Globally, energy efficiency can benefit from the economies of scale that
come with technological innovation, financing mechanisms and program design. The
result of this global effort to enable energy efficiency requires a LEA to utilize and adapt
tools for on-the-ground implementation. No two communities are alike, thus, a LEA is
the best-suited entity to design customized programs given a standardized set of tools that
will meet the needs of the local community. A LEA’s role may be different in every
community, but can range from energy efficiency retrofit program design,
implementation, financing, quality assurance and control, monitoring and evaluation, and
ancillary services such as energy efficiency education, workforce development and
advocacy for more attractive retrofit policy tools.
In defining its value proposition to home and building owners and contractors, the local
energy alliance should identify opportunities to leverage capital and generate revenues to
sustain costs and grow the program over time. A LEA’s core competencies can be broken
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into five main categories that will be described in turn in Table 1 below: 1) Education
Outreach and Contractor Training; 2) “Bridging the Gap”; 3) Partnerships with Financial
Services; 4) Quality Assurance and Quality Control; and 5) Advocates for Local and
State Policies that Enable Energy Efficiency. Each of these core functions contributes to
expanding the market for energy upgrades and generating revenue to sustain its mission.
Together, these roles give the LEA an advantage over a traditional utility-run energy
efficiency program in that many ratepayers typically do not view their service provider as
an ally in reducing electricity needs. Likewise, utilities may not be equipped to manage a
robust energy efficiency program since it is not core to their business.
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Table 1: Core Competencies of a Local Energy Alliance
1) Education Outreach and Contractor Training
In markets where the benefits of energy efficiency are not well known, a LEA’s first objective is to inform homeowners and building owners about the benefits of energy efficiency and how to overcome the perceived barriers to energy upgrades. Through education and outreach on these issues, the LEA helps to drive demand for energy efficiency retrofits. Some of these benefits that the LEA may highlight are the long-term dollar savings from a more energy efficient home or building, the human health benefits from improved indoor air quality and environmental impacts of reduced greenhouse gas emissions. Additionally, a LEA plays an important role in creating a qualified or certified workforce for home and building energy improvements. By partnering with local universities, certification associations, or by hosting internal training or certification programs, a LEA will ensure that there is an adequately trained workforce to meet a growing demand for energy efficiency upgrades.
2) “Bridging the Gap”
In driving demand for energy upgrades and securing a qualified workforce, a LEA also plays an important role in bridging the gap between home/building owners and home performance contractors by facilitating the interaction of these two parties. A LEA helps home and building owners take the hassle out of finding a qualified contractor by prescreening and approving contractors in their network. Additionally, the LEA walks customers through the process and streamlines paperwork to receive rebates and other incentives. They serve as a “one-stop shop” for home and commercial building energy upgrades with a focus on customer service. The LEA’s network of contractors have been certified, receive on-going training and other additional support to ensure that customers receive high-quality service and maximum efficiency gains for their homes or buildings. A LEA’s business model may even tie their revenue to the savings provided to their costumers. For contractors, the LEA is a strong ally as it generates job leads through its marketing efforts and attractive rebates and incentives.
3) Partnerships with Financial Services Companies
Removing the upfront cost barrier is a vital component of a LEA’s niche and key to its long-term success. Rebates and incentives will typically not cover the full costs of a complete home or building upgrade, thus the LEA will need to offer a suite of financing options to meet the needs of a diverse customer base. By partnering with credit unions, private banks, municipal or self-managed revolving loan funds, a LEA will be able to negotiate the best loan terms for their clients. Additionally, a LEA may employ mechanisms such as a loan loss reserve or an interest rate buy down to lower the cost of capital. When attractive loan products and incentives are available, the contractor may have more opportunity to sell customers additional “green” products, such as rooftop solar or geothermal heat pumps. Alternatively, a LEA with greater access to capital may chose a business model that provides the upfront investment costs of the energy upgrade and reaps the benefits for a period while lowering the energy bills for home/building owner, similar to an Energy Services Company (ESCo) model.
4) Quality Assurance/Quality Control (QA/QC)
A LEA may guarantee quality assurance and quality control for home and building owners, which will ensure that energy upgrades have been completed to the highest standards and meet projected energy savings. The LEA may also offer one hundred percent customer satisfaction and have sanctions in place for network contractors that do not comply with contract agreements. These policies will strengthen customer trust and brand image for the LEA, as well as provide the metrics to account for actual verses estimated energy savings.
5) Advocates for Local, State and Federal Policies that Enable Energy Efficiency
A LEA will advocate for policies that will create standards for building retrofits, establish common metrics for determining energy savings and push for mandatory certifications for home performance contractors. These policies may include: tax credits, rebates or other incentives
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Snapshot: Local Energy Alliance Case Study: Figure 9 shows a screenshot of the Local Energy Alliance Program (LEAP) in Charlottesville,
Virginia. From LEAP’s homepage, a homeowner can quickly access resources to learn about the
benefits of home energy retrofits, what to expect throughout the process and rough estimates of
the long-term savings potential from energy efficiency upgrades. A full description of the rebates
and other incentives for customers is also available here. Behind the scenes, LEAP has already
established a network of
qualified contractors.
Additionally, they provide
continual training programs
to ensure that customers
receive high-quality energy
upgrades with measurable
savings. Finally, LEAP has
arranged a loan loss reserve
guarantee or an interest rate
buy-down with local
financial institutions to
provide LEAP customers with the lowest interest rate available on loans for home energy
improvements. Figure 9: Example of a SEEA LEA: Charlottesville, VA's Local Energy Alliance Program (LEAP)xxvi
The Challenge of the Local Energy Alliance
LEAs in the Better Buildings Neighborhood Program, including the thirteen in SEEA’s,
network, have set forth ambitious short and long-term goals that are at odds with one
another. The BBP grants have a three-year time frame to complete 100,000 retrofits that
produce 15-30 percent energy savings per retrofit, while at the same time setting the
foundation for the sustainable growth of a private energy efficiency retrofit market. Local
energy alliances in SEEA’s portfolio and around the country, however, currently have no
26
defined vision for how to fund or sustain their retrofit programs beyond the BBP grant
period, which is set to expire in September of 2013. There appears to be political pressure
to “get the money out the door” in order to quantify retrofit jobs and capital deployed.
This approach directly threatens the long-term vision of the program. The challenge of
the local energy alliance is to achieve both short-term retrofit goals and long-term market
transformation of this industry. The Better Buildings Neighborhood Program appears to
only be supporting the former.
The Better Buildings Neighborhood Program and SEEA are equipped to provide
technical assistance for the local energy alliances, as well as basic tools and resources for
driving consumer demand, financing projects and training contractors in whole-home
energy efficiency measures; however, they are lacking a clear roadmap for LEAs to plan
for the long-term viability of their program after the grant period expiries. Many LEAs
have experimented with various fee structures to help offset overhead costs, testing their
pricing strategies to determine their market value. This practice was brought to a halt in
late 2011 however, when the DOE announced that BBP grant recipients would not be
permitted to offset program costs by implementing fees on contractors or home and
building owners during the grant period. While this imposes a challenge for programs
trying to establish their market value, there is still an opportunity for a program to
propose a fee structure that will be approved upon review by the DOE in the last six
months of the grant period. When the BBP grant funding expires, the local energy
alliances will once again be able to implement a fee structure, however, re-establishing
27
this value may prove to be difficult, since contractors and homeowners will by then be
accustomed to a subsidized market.
The next section of this report will outline various options for local energy alliance
program managers to consider now, so that by the end of 2013 they will be prepared to
continue their services without relying on federal funding.
Pathways for Local Energy Alliances to Thrive Post-‐Grant Funding
When the BBP grant funding expires in the third quarter of 2013, LEAs around the
country will cease to exist if they do not have a plan in place to fund future operations.
LEAs should treat the grant as seed capital to launch a full-fledged program with diverse
funding and revenue streams. To thrive in a post-ARRA world, LEAs will need to seek
partnerships with utilities, local governments and private entities to grow its capital pools
for rebates and incentives. Innovative financing mechanisms such as revolving loan funds
and on-bill financing are critical for expanding access to energy retrofits. Additionally, a
LEA must adopt an earned revenue strategy to offset overhead and administrative costs
by implementing a fee-for-service business model. In choosing a diverse funding and
earned revenue strategy, a LEA mitigates the risk of closing its doors and ensures its
ability to drive a local market for energy efficiency retrofits. This section will give a brief
synopsis of the guidebook created for SEEA in March 2012, which defines these options
in three broad categories to be discussed in turn: Earned Revenue, Contract Services and
Innovative Financing Tools.xxvii Experimentation with these strategies now may
ultimately shape the business model and path forward for the LEA post-ARRA funding.
28
Table 2: Pathways for Local Energy Alliances post-ARRA funding
I. Earned Revenue II. Contract Services III. Innovative Financing Tools
Overview Earned revenue strategies through “fee-for-service” business models.
Revenue earned through contracts to administer and implement energy efficiency programs.
Tools that the LEA can implement to make loan products more attractive to potential customers, thus enhancing the effectiveness of the LEA.
Long-term viability potential for the LEA
The LEA streamlines paperwork between the contractor and the homeowner, making the experience hassle-free. In return, the LEA takes a cut to grow their rebate program.
The LEA is contracted by a municipality or a utility to serve as a third-party administrator and implementation partner and uses 3rd party funds to run the program. The LEA charges for this service to cover their overhead, labor costs and/or to scale the business.
The LEA does not generate revenue with these tools; however, they will allow the LEA to offer rebates in addition to attractive loan options for home energy upgrades.
Considerations for the LEA
Is there enough demand from both homeowners and contractors to warrant this business model?
Given the competition from professional consulting firms with this expertise, does the LEA have enough credibility to leverage these contracts?
How strong is the utility buy-in and/or local government’s commitment towards incentivizing energy efficiency upgrades?
I. Earned Revenue
Currently, local energy alliances in SEEA’s network are only utilizing the BBP grant
money to pay for their rebate and incentive programs. Going forward, a LEA may choose
to adopt a fee-for-service business model approach to help offset their overhead costs,
while maintaining their status as a not-for-profit organization. In providing a valuable
29
service to both homeowners and contractors, the LEA can charge a reasonable fee for
their products and services, as well as for the expertise they provide to both parties. This
section will summarize common examples for earned revenue business models. A
description of the advantages, disadvantages and considerations of each business model
can be found in Appendix A.
Contractor/Vendor Fees
Contractor or vender fees are one of the most straightforward ways for a LEA to generate
revenue in exchange for a value-added service. In setting up a contractor fee, regardless
of the structure, it is important to highlight the benefits to the contractors of being a
member of the LEA network. Two common examples of these fees are: 1) annual or
monthly membership fees; and 2) percentage override or flat fees.
1) Annual or monthly membership fee
A membership fee is charged to the contractor to be a part of the LEA network. This
could range from a couple hundred dollars to several thousand dollars per year,
depending on the benefits and/or services the contractor receives from the LEA. Fees
could be used to help offset the LEA’s cost of marketing and outreach, costs to provide
quality assurance and/or quality control (QA/QC), or to help cover program
administration costs. Benefits to highlight for contractors may include: customer leads
through LEA marketing initiatives, free or reduced cost of trainings and certifications,
access to reduced cost IT tools, and other on-going benefits. Each LEA will have to
experiment to determine a fee structure that works for the program.
30
2) Percentage override or flat fee
A percentage override or a flat fee is an additional charge to contractors on total retrofit
project cost. For a percentage override fee, this could be anywhere between two to five
percent of the total project cost, with a logical cap after a job reaches a certain size, or
around $10,000. Some programs may have a tiered rate structure depending on who
generates the lead and others may charge the same percentage or flat fee regardless of job
origination. This fee mechanism can be used in combination with other fees such as a
contractor membership fee or a homeowner/owner’s agent fee. Stressing to the
contractors the benefits of participating in the LEA program will be critical to the
successful implementation of this fee.
Homeowners/Owner’s Agent Fees
There are several types of fees that a homeowner or building owner could be charged,
however, fees need to be reasonable and there must be highly perceived benefit. For
simplicity, several of the fees outlined below could be bundled together into an
“administrative fee” in their residential or commercial program. The LEA needs to
communicate a clear value to the homeowner or building owner, above and beyond what
they might do themselves. Two common examples of these fees are: 1) Audit fees; and 2)
Energy Service Advisor fees.
31
1) Audit fees
While giving away free audits may seem like an obvious way to draw homeowners into
the LEA program, initial research from the Lawrence Berkeley National Lab (LBNL)
indicates that conversion rates from energy audits to energy retrofits are actually higher
when the homeowner has paid market rate or close to market rate for a home energy
audit.xxviiiTherefore, it is recommended that the LEA not erode the market value of this
service by providing free audits. If the LEA choses to subsidize the audit fee, it should
publicize the going market rate for this service, as to not undercut the private energy audit
industry.
One option is for the LEA to offer tiered audit services through in-house resources or
external providers. For example, a level 1 audit could be a free and simple walk through
of the home to identify no or low-cost solutions for energy savings. A level 2 audit could
be structured as a comprehensive home energy assessment available at market price with
rebates to offset the cost to homeowners. Programs such as RePower Bainbridge in
Washington State experimented with this model before the DOE’s new regulations were
announced that limited BBP grant recipients to solely relying on grant funds.xxix
2) Energy Advisor Service Fee
An Energy Advisor service (also called an energy coach or energy concierge) can be an
effective way to maintain customer satisfaction and increase conversion rates from
energy audit to energy retrofit. While the level of services may vary, an energy advisor
essentially walks a homeowner or building owner through the entire process: from
32
explaining the audit recommendations, to offering rebates or financing options, to
following up after the job is complete and ensuring satisfaction. This is likely an
expensive component of the program and the LEA may decide to charge the homeowner
or building owner a fee for this service. The EnergySmart program run by the City of
Boulder is one of several programs that offer multiple levels of energy advisor services at
different price points.xxx
Products and Services for Do-It-Yourself customers
While the goal of a local energy alliance is to drive a private market for energy retrofit
contractors, there could also be a substantial market for services offered to homeowners
that are interested making their homes more efficient, but prefer to do the labor
themselves. Services could include: an energy audit that identifies lowest cost energy
savings renovations within a budget, a LEA discount on purchasing supplies, fee to
provide QA/QC after the project is complete and to ensure energy savings. Fees for
DIYers could help expand the LEA customer base and potentially feed homeowners into
the full LEA retrofit program.
II. Contract Services
As a leader of energy efficiency program design and implementation, a LEA may be
contracted by either a local government or a utility to administer a comprehensive energy
efficiency retrofit program for ratepayers. Investor-owned utilities in the southeast have
been reluctant so far to agree to this type of partnership; however, this could change as
LEAs throughout the country gain credibility in the marketplace. There also may be
opportunities to partner with municipal or rural cooperative utilities that have strong
33
incentives to promote efficiency. As a third party administrator of these programs, the
LEA may charge a small fee to cover overhead costs, while utilizing ratepayer or
municipal funds to serve the rebate and incentives program. Building credibility in a
market that is dominated by savvy consulting firms already administering similar
programs will be critical for the LEA to gain a competitive edge. Appendix B includes a
full description including advantages and disadvantages to a contractual services business
model.
III. Innovative Financing Tools
Innovative financing tools are not exactly ways for the LEA to generate revenue,
however, they are important to the sustainable design of the program. Rebate programs
are inherently not maximizing the full potential of grant funding, as they do not leverage
the possibility of recycling capital pools more than once. There are a several tools that
may make those dollars go further that will be discussed briefly here: revolving loan
funds and utility on-bill financing.
Many local energy alliances have created revolving loan funds (RLFs) that give loans
specifically for large retrofit projects. They recycle the funds and loan interest to grow
the program, which allows more borrowers to tap into the RLF. The grant funding that
the LEAs received from the Better Buildings Neighborhood Program should be treated as
the seed money to establish a revolving loan fun. Additionally, if the RLF is self-
managed, a local energy alliance can charge origination fees, management fees, and
interest to the borrower, typically between one and five percent of the loan value. These
fees will either go to the financial institution or to the LEA to cover overhead costs. The
34
local energy alliance may also contribute funds for interest rate buy-downs or credit
enhancements such as a loan loss reserve guarantee, which will reduce the ultimate cost
of the loan for the borrower.
A utility on-bill financing program allows the home or building owner to take out a loan
for an energy efficiency upgrade and then repay that loan on their monthly utility bill.
Because the building will save 15-30 percent of their original energy bill due to the
retrofit efficiency gains, the loan payments can typically be structured such that the
customer does not see an increase in their monthly utility bill. After the loan as been paid
off, the customer will capture the full cost-savings benefits associated with lower energy
bills. Although this concept appears simple in theory, on-bill financing requires
significant coordination and buy-in from the local utility, which may not be suited to
serve as a collection agency for energy efficiency loans payments.
Other tools such as Property Assessed Clean Energy (PACE) programs and Qualified
Energy Conservation Bonds (QECB) were originally researched for SEEA, however, the
complexity of these mechanisms in addition to the level of municipal support was
deemed to be infeasible in the Southeast. Appendix C includes a full description of these
innovative financing tools.
35
Feasibility of Pathways for SEEA’s Local Energy Alliances in the Context of Current Challenges To determine the feasibility of the options described in the previous section, this report’s
author first investigated the current challenges of SEEA’s programs before giving the
final recommendations for the local energy alliances to remain viable long-term.
In conversations with SEEA’s Director of Municipal Energy Efficiency Programs while
working as their summer intern in 2011, it became clear that about halfway through the
three-year grant period, the local energy alliances in SEEA’s network were falling short
of meeting their collective goals. The benchmarks in Table 3 show that, as a whole, local
energy alliances in SEEA’s network had achieved less than one tenth of their goal to
complete 10,000 retrofits by the end of 2013. A few LEAs had even discontinued their
relationship with SEEA and the BBP due to limited program success. Additionally, the
energy savings from retrofit projects are no longer being tracked, since this was deemed
by the DOE to be challenging and often inaccurately measured. Furthermore, none of the
programs had any additional revenue streams or sustainable funding sources beyond the
BBP grant funding.
SEEA Goals by 2013: SEEA Results, as of
late 2011*:
Retrofits completed 10,000 <1,000
Energy savings 15-30% Stopped keeping track
Self-sustaining programs 100% 0%
Table 3: SEEA Program Benchmarks * For confidentiality reasons, this report will not give specifics on SEEA program statistics
36
Despite these red flags, the Better Buildings Neighborhood Program website shows that
SEEA is on track with its finance, workforce and marketing milestone goals.2 These
goals are nebulously described and quantified publically with a “check,” rather than a
transparent status report on each grant recipient (see Figure 10).xxxi After months of
research, it became clear to this report’s author that the long-term goals of the Better
Buildings Neighborhood Program to foster a viable market for energy efficiency retrofits
were secondary to demonstrating short-term benchmark goals.
Figure 10: Milestones for grant recipients of the Better Buildings Neighborhood Programxxxii
At a conference held in June 2011 for local energy alliance program managers in SEEA’s
network, many voiced a strong concern for insufficient demand in their communities for
whole-home or building retrofit jobs. While most customers would be willing to take a
rebate to replace their old refrigerator with a more energy efficient model, few are
inclined to borrow money to make an investment for a comprehensive energy retrofit for
their home or building.
2 DOE website has labeled SEEA here as the “Southeast Community Consortium,” an outdated name
37
In lieu of high demand for whole-home energy upgrades, SEEA’s local energy alliances
have independently responded by taking a “build it and they will come” approach to their
programs design. Many have gone to great lengths to partner with financial institutions to
create loan products with complicated loan loss reserve or interest rate buy down
contracts. These loan packages are difficult to establish, as the risks are not
straightforward and the market is not well understood. Furthermore, the loan enables the
borrower to achieve energy “savings” rather than a tangible asset such as a car or a solar
panel, which can be salvaged in the event of loan default. The combined effect of these
factors has led to limited success in partnering with financial institutions for energy
efficiency loan products.
Additionally, local energy alliances are too focused on building out qualified contractor
networks, and have overlooked the importance their downstream market – home and
building owners in the market for energy efficiency retrofits. While it is important that
contractors are trained in the science of whole-home energy upgrades, this serves no
purpose if the demand for these services does not exist. Furthermore, contractors will
seek the qualifications without subsidy, if the market indicates this need. Despite the
local energy alliance’s best efforts to alleviate the barriers to energy efficiency adoption
rates, the barriers in this market, as mentioned above, have inhibited the success of
SEEA’s programs.
38
The challenges that SEEA faces, thus, are more complex than simply addressing how
each local energy alliance will survive post-BBP grant funding. Without sufficient
demand for energy efficiency retrofits in their regions, the local energy alliances will
have no market to serve and no reason to continue long-term. One exit strategy may be
for LEAs to allocate all of their grant funding in the form of rebates and cease to exist
after 2013. While this outcome is not optimal, for many LEAs it might become a reality.
The next section of this report will conclude with recommended strategies for SEEA and
its local energy alliances to be well positioned for both short and long-term success.
Recommendations to SEEA
In the dozens of interviews conducted for this research report, not one program manager
in the SEEA network could completely answer the question, “How will you keep the
local energy alliance in operation after 2013?” Most of the conversations were dominated
by concerns over generating demand in the short-term and meeting the yearly targets that
each LEA has set in accordance with SEEA’s mandate. Thus, the final recommendations
for SEEA are two-fold: refocus the program design now to educate the public about
energy efficiency and implement long-term strategies to ensure program success post
federal funding.
Recommendation 1: Start with the basics
As highlighted above, the “build it and they will come” model is an important component
of creating an infrastructure to support a retrofit market, but getting over the knowledge
gap, appears to be a more fundamental threat to the success of local energy alliances. By
39
allocating more time and resources into consumer outreach and education, the local
energy alliances in SEEA’s network can effectively drive demand for retrofits, while
allowing private contractors and financial institutions to do the heavy lifting once the
market is ready.
Educating consumers on the benefits of these investments and helping them understand
the true savings potential is less costly and a more effective use of the LEAs resources at
such an early stage in the Southeast’s retrofit market. In the Role of the Local Energy
Alliance section, this report discussed education and public outreach as a core function of
the LEAs niche in this market. A return to this basic role is needed to build an interest for
home and building energy retrofits. As demand for energy efficiency picks up, the LEA
can transition into leveraging more partnerships with financial institutions and contractor
networks. By starting with the basics of generating demand, LEAs will be well positioned
to mature with the growing needs of the energy efficiency retrofit market.
Recommendation 2: Utilize the long-term viability options now for a smooth transition
into program autonomy
In the year and a half that the local energy alliances have remaining in the Better
Buildings Program, LEA managers should begin market feasibility studies to determine
which fee structures may work for their particular community. The DOE has approved
the local energy alliances to implement fees in their programs up to six months before the
grant period, which allows time for the LEA to true up their pricing strategy of a fee-for-
service business model. By commanding a fee for their services, the LEA demonstrates
40
its added value and increases the likelihood of partnerships with utilities, local
governments and financial institutions. Additionally, local energy alliances should be
making a concerted effort to engage with the local utilities and municipal leaders now to
discuss the possibility of contracted services or other partnerships. Having these
conversations now will allow the LEAs to scale their efforts to sustain a retrofit market in
their community. To ensure a smooth transition into autonomy in 2013, SEEA’s local
energy alliances should experiment now, while they have the BBP support, with the
various business plan options and tools outlined in this report.
Conclusions
For a $508 million experiment to discover innovative business models that will have
lasting impact on the energy efficiency retrofit market, the Better Buildings
Neighborhood Program has been successful in supporting an industry of entrepreneurs
that are, as a whole, helping to improve the clean energy economy. As the only grant
recipient in the Southeast, SEEA has forged ahead with experimental program designs,
allowing local energy alliances to determine best practices in this region. It is time now,
however, that SEEA give more guidance to the local energy alliances to help program
managers focus on the basics of driving demand for energy efficiency while navigating
the barriers that have traditionally impeded this region’s investment in home and building
retrofits.
It is not surprising that some LEAs have fallen out of the SEEA network and that others
may also fail to establish a successful program beyond 2013. The Better Buildings
41
Neighborhood Program is aware of these high stakes and perhaps has allocated only a
small percentage of the total DOE funding to this endeavor for that reason. It is
important, however, that the BBP administrators and SEEA capture the lessons learned
from program failures and incorporate those changes into their new program initiatives.
This report therefore recommends that the LEAs make this midway programmatic shift
that focuses on educating consumers and creating the need for the ancillary services that
support the retrofit industry, rather than creating these services themselves. This
combination will bring the clean energy jobs and economic impact that the BBP and
SEEA envision.
Additionally, without the foresight to experiment with more meaningful business models
during this period of complete subsidization by the federal government, the local energy
alliances will have limited chance of future success. It is prudent that the LEA program
managers dedicate time and resources over the coming months to determine the
feasibility of the options laid out in this report (and in Appendices A-C) in order to set the
foundation for continued growth and to achieve their long-term goals in the region.
The Southeast Energy Efficiency Alliance has the unique opportunity to impact the
Southeast’s energy consumption by scaling best practices for energy efficiency retrofit
program design and implementation. As a first-mover in this market, SEEA is learning by
trial and error to find viable solutions with real impact to save money through energy
savings, create jobs and importantly: foster a growth market for energy efficiency
retrofits. By adopting the recommendations described in this report, the Southeast Energy
42
Efficiency Alliance the their local energy alliances will be well prepared to meet these
goals and create a cleaner, safer, more efficient environment for the entire Southeast.
43
Glossary of Acronyms ARRA: American Recovery and Reinvestment Act BBP: Better Buildings Program DOE: Department of Energy DIY: Do It Yourself EECBG: Energy Efficiency Conservation Block Grant ESCo: Energy Services Company EPA: Environmental Protection Agency FERC: Federal Energy Regulatory Commission GHG: Greenhouse gas LBNL: Lawrence Berkeley National Lab LCOE: Levelized cost of energy or electricity LEA: Local Energy Alliance LEAP: Local Energy Alliance Program LLR: Loan Loss Reserve PACE: Property Assessed Clean Energy PBC: Public Benefits Charge PUC: Public Utility Commission QA/QC: Quality Assurance and Quality Control REC: Renewable Energy Credit RLF: Revolving Loan Fund SBC: System Benefit Charge SEEA: Southeast Energy Efficiency Alliance QECB: Qualified Energy Conservation Bond WISE: Worthwhile Investments Save Energy
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Appendix
Appendix A: Earned Revenue Selected excerpts from The Future of Better Buildings Neighborhood Program’s Local Energy Alliances: Guidebook for Financial Sustainability Post-ARRA Funding. Written by Kathleen Fraser and Glenn Barnes (Environmental Finance Center):
Contractor/Vendor Fees:
Annual or monthly membership fee Advantages Disadvantages
• Relatively simple to implement and collect
• Fee could be set up as a flat or sliding fee depending on the work volume per contractor
• Contractors are more committed to LEA program if they are a paying member
• Strong value proposition for the contractor if benefits are properly marketed
• Can offset LEA program/administrative costs
• Sustainable source of revenue
• Difficult to determine the price threshold
• May deter contractors from being part of LEA network
• Difficult to estimate revenue from this fee structure, especially as the program is ramping up and may experience inconsistent growth rates and contractor participation
Guiding Questions
• Do contractors perceive valuable benefits from being a part of the LEA network? What does the LEA offer in exchange for membership fees?
• What barriers may exist for contractors that would make them unwilling to pay a membership fee?
• Can the LEA sustain the benefits to contractor membership?
Percentage override or flat fee Advantages Disadvantages
• Relatively simple to structure and implement
• Contractors likely to approve of fee if benefits of program are properly marketed and demonstrated
• Can offset LEA program and administrative costs
• If passed on to building owner, it can be rolled into the financing, which streamlines payment
• Sustainable source of revenue
• Some contractors may dispute or not approve of the percentage override
• May be difficult to collect from contractors unless it is deducted from the contractor rebate that the LEA provides
• Difficult to estimate revenue from this fee structure, especially as the program is ramping up and may experience inconsistent growth rates
Guiding Questions
• Does the LEA generate more leads for contractors or vice versa? • What is the percentage or flat fee threshold price for contractors?
45
• What types of fees do contractors pay to be a part of other networks that generate leads? • Are there any other financial transactions that take place between the LEA and the
contractor to facilitate the payment of this fee?
Homeowners/Owner’s Agent Fees
Audit fee, external or in-‐house Advantages Disadvantages
• Works to correct consumer perception that the audit should come for free
• Helps private sector auditors to maintain living wage if programs resist giving audits away for free
• Proven to be more effective for conversion rates
• May push some target markets away from program that potentially would have followed through with retrofit (although overall, homeowner buy-‐in is more successful for retrofits)
Guiding Questions
• What is the market rate of a home energy audit in the LEA’s region? • Are there opportunities for the utility partnerships to lower the cost of the audits for
homeowners via rebates? • Would an in-‐house audit service compete with the private sector or fill a market gap
while also generating revenue for the LEA?
Energy Advisor Service Fee Advantages Disadvantages
• Higher audit to retrofit conversion rates with this service
• Potential to provide a higher level of customer satisfaction with program
• Simplifies process for the homeowner
• Expensive to offer this service, fee alone may not be enough to cover the true cost of an energy advisor
Guiding Questions
• How savvy are contractors at “selling” their services to homeowners and explaining the benefits of whole-‐home approach to energy efficiency?
• Can contractors be trained in customer relations or is it more cost effective to bring along an energy advisor?
• What are the major barriers for homeowners not going through with retrofits and how can an energy advisor overcome those barriers in a cost effective manner?
46
Overview of EnergySmart, City of Boulder, Energy Advisor role and fees: http://www.energysmartyes.com (accessed August, 2011)
47
Products and Services for Do-‐It-‐Yourself customers Advantages Disadvantages
• Expands the customer base and range of revenue sources
• Could drive customers towards more do-‐it-‐yourself measures, which is not in-‐line with the goals of market transformation for energy efficiency contractors
Guiding Questions
• Could the LEA feasibly offer these services to DIYers without detracting from its core mission?
• Could the LEA act as an on-‐line or brick-‐and-‐mortar store for DIY energy efficiency products?
Green Savings Company is a leader in the T5 Retrofit Kit, products for commercial lighting “Retrofit Kits”. Partners with utilities to chip in for rebates or discounts for these products: <http://greensavingsco.com/2010/11/the-‐t5-‐retrofit-‐kit/>
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Appendix B: Contracts: Selected excerpts from The Future of Better Buildings Neighborhood Program’s Local Energy Alliances: Guidebook for Financial Sustainability Post-ARRA Funding. Written by Kathleen Fraser and Glenn Barnes (Environmental Finance Center):
Units of Government Summary:
Many local and state governments have used ARRA grant dollars and other funds to establish public
subsidy programs for energy improvements. As a qualified leader of energy efficiency program
design and implementation, a LEA may be contracted by units of government to administer a
comprehensive energy efficiency retrofit program for residential and commercial building owners
with the units of government supplying the capital necessary for the public subsidies.
Governments themselves have several options for this capital. Three common government finance
options:
• Taxes: Taxes on property (local governments), income (state government, largely), and sales
(both) provide the majority of revenue for governments. Taxes support the general
functions of government which could include public subsidies of energy improvements. This
capital can come from current tax receipts or from unrestricted fund balance (i.e., the
government’s savings account).
• Debt: Governments have the ability to borrow money at relatively low rates due to their
stable nature and access to tax-‐free lending. Governments could borrow money to seed an
energy loan program and then use the repayments on the loans to pay back their own debt,
with the LEA serving as the program administrator. Right now, governments have access to
Qualified Energy Conservation bonds (QECBs),3 which are low-‐interest tax credit bonds that
can be used for energy projects including community-‐based loan programs. Debt would not
be a capital option for rebate programs.
• Grant pass-‐through: There may be some federal or state grants that only units of
government are eligible to receive. The government could apply for these grants, and if their
application is successful, the government can pass the funds on to a third party such as a LEA
to operate the energy program.
Governments also have access to a few innovative sources of capital, including but not limited to:
• Special taxes on carbon: Governments can impose a special, specific tax related to the
impacts of carbon dioxide. These taxes are very unusual in the United States in general and
especially in the southeast. The City of Boulder, CO has a Climate Action Plan tax,4 passed by
3 http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US51F&re=1&ee=1 4 http://www.bouldercolorado.gov/index.php?option=com_content&task=view&id=7698&Itemid=2844
49
referendum, that charges residents for the carbon impacts of their electricity use and is
earmarked specifically for instituting the city’s energy improvement program.
• Greenhouse gas auction proceeds: In areas with cap-‐and-‐trade programs for carbon,
governments have access to the proceeds of the carbon auctions and can use these funds for
energy programs. Currently, auctions under the Regional Greenhouse Gas Initiative (RGGI)
in the northeast United States creates funds to be used for energy programs such as the
Green Jobs Green New York program operated by NYSERDA.5 There are no current or
planned greenhouse gas auction programs in the southeast.
• Sustainable energy utility enterprise fees: In addition to its general functions that are
supported by taxes, units of government also operate independent, business-‐like enterprises
that are supported by fees (such as local water and wastewater utilities). Governments
could charge a fee to all citizens to support an energy improvement program that benefits
the entire community and then re-‐distribute those funds through a LEA into public subsidies.
While this concept is new for energy programs, it is not uncommon for other government
environmental services such as stormwater programs.
• Environmental penalties: Companies or others that are in violation of environmental laws
pay penalties that can be designated as capital for energy improvement programs. For
example, Tennessee is operating a program called the Clean Tennessee Energy Grant
Program6 which provides grants to public and private entities and is funded by a federal
court settlement of an enforcement action under the federal Clean Air Act that resulted in a
consent decree with the Tennessee Valley Authority (TVA).
Advantages Disadvantages • Governments have access to large
amounts of sustainable funds through taxes, fees, and other sources
• Governments may not have the expertise that LEAs do to operate programs or may run into procurement rules that make running programs difficult
• Funding for rebate and other non-‐revolving program designs would need to be renewed every year
• Funds subject to changes in organizational priorities, politics, and the availability of funding
Guiding Questions
• Does the LEA have a good relationship with the unit of government, and does the unit of government recognize the value of the LEA’s program?
• Is the unit of government operating an energy program that the LEA could operate more efficiently?
• Does the unit of government have an appetite to create and sustain an energy finance program using public tax and fee revenue?
5 http://www.nyserda.ny.gov/Program-‐Areas/Energy-‐Efficiency-‐and-‐Renewable-‐Programs/Green-‐Jobs-‐Green-‐New-‐York.aspx 6 http://www.tn.gov/environment/energygrants/
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Electric and Natural Gas Utilities Summary: While electric and natural gas utilities are in the business of selling energy, they have a
number of reasons to support conservation efforts, including mandates from state regulations,
operating efficiency during times of peak demand (reducing the need to bring inefficient plants on-‐
line, for example), delaying the construction of future generation capacity, and good customer
service. These utilities typically come in one of three forms: large investor-‐owned utilities, municipal
utilities that are owned and operated by units of government, and cooperative utilities that are
member-‐owned not-‐for-‐profits. Many utilities in the southeast and around the country subsidize
energy improvement programs through rebates and loans. Cooperative utilities across the country,
for example, likely provide most of the energy finance programs to rural America. While the utility
has sustained contact with its customers through its billing cycles, LEAs may be better able to
operate energy programs due to their presence in the market and network of contractors. LEAs
should look for opportunities to operate programs on behalf of utilities using utility capital for the
public subsidies of projects. Sources of utility capital include:
• Revenue from utility rates: Utilities can build money for energy programs into the rates
they charge their customers or consider promoting conservation as part of their overall
business plan. Some of the largest energy finance programs in North America are supported
by rate-‐payer capital, such as the Manitoba Hydro Power Smart Residential Loan Program,7
which has issued more than $200 million in energy loans to approximately 51,000
residences since 2001.
• Public Benefits Funds: Also called Systems Benefits Funds, this is a small surcharge applied
to the bills of all customers based on their usage. The surcharges are aggregated and then
used to fund energy efficiency and renewable energy projects. Sometimes, the utility
operates the fund, while in other cases the surcharges are collected by the utility and passed
on to a third party administrator, often a state agency. The only public benefits fund in the
southeast is a voluntary contribution program in Virginia,8 though they do exist as
mandatory programs in other parts of the country.9
Advantages Disadvantages • Utilities have access to large amounts
of sustainable funds through rates charged to customers or public benefits funds
• Utilities may not have the expertise that LEAs do to operate programs, especially municipal or cooperative utilities
• Utilities have financial incentives to
• Utility may be operating a program already
• The amount of capital available may not be large, especially from municipal and cooperative utilities
7 http://www.hydro.mb.ca/your_home/residential_loan.shtml 8 http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=VA21R&re=1&ee=1 9 http://www.dsireusa.org/incentives/index.cfm?SearchType=PBF&&EE=1&RE=1
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encourage conservation of energy Guiding Questions
• Does the LEA have a good relationship with the utility, and does the utility recognize the value of the LEA’s program?
• Is the utility operating an energy program that the LEA could operate more efficiently? • Does the utility have an appetite to create and sustain an energy finance program using
rate-‐payer capital?
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Appendix C: Selected excerpts from The Future of Better Buildings Neighborhood Program’s Local Energy Alliances: Guidebook for Financial Sustainability Post-ARRA Funding. Written by Kathleen Fraser and Glenn Barnes (Environmental Finance Center):
Innovative Financing Tools:
In addition to sources of capital, LEAs can consider implementing a program design that is
sustainable over time as a way to increase the life of its energy improvement program. Certain
program designs only allow for funds to be spent once. These include rebates, buying down the
interest rate of private loans, and making loans backed by debt. Once rebates and interest rate buy-‐
down funds are spent, they are gone. And the repayments made on loans backed by debt must be
used to pay off the debt itself.
There are, however a few program designs that allow capital to be “re-‐used”—that is, the initial
capital can support more than one project over time: revolving loan funds and loan loss reserves.
A revolving loan fund makes loans to individual borrowers, ideally below market value, and, as the
borrowers pay off their debt, loans the repayments to new borrowers. Money only leaves the
revolving cycle if there are defaults on loans or if the program needs to take funds out to cover
administrative expenses. Revolving loan funds are especially useful if the LEA does not have a
sustainable source of capital, such as a governmental or foundation grant. The LEA only needs
funding once to get the revolving loan program started, and interest paid on the loans can help to
cover the administration and management costs of operating the loan program. If the LEA is
operating the revolving loan fund program itself, it will be responsible for underwriting, collecting
monthly payments, and pursuing loans in default.
One possible collection method for revolving loans is through utility bills, often called on-‐bill
financing. Under this model, the LEA would partner with a utility to collect payment monthly
through its bills and pass the payments to the LEA. This collection method has a number of
advantages—people are used to paying utility bills already, and they would be able to see their
energy savings alongside their loan repayments to underscore how energy projects can help pay for
themselves over time. One concern with this type of arrangement is what priority the loan
repayment will be given on the utility bill. In other words, if a utility customer only pays his or her
bill in part, will the LEA receive a proportional share of the loan repayment, or will they only receive
funds after the utility has collected its entire share? In some instances, utilities will keep the loan
attached to the meter, which means that if a customer moves away, the new property owner will pick
up repayment of the loan.
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Governments operate a similar repayment mechanism called Property Assessed Clean Energy, or
PACE. PACE is not a loan but rather an assessment made on real property to pay back the costs of a
public improvement, in this instance an energy improvement. Governments would pay for the
improvement and then assess the property owner, putting a lien on the property and collecting
payment through property tax bills. The lien remains with the property even if the owner moves and
is paid back by the new property owner. LEAs do not have the authority to assess property but could
partner with governments in operating the programs if the government has the authority to do so
under state law.10 Early PACE programs focused on improvements to residential property; however,
a 2010 memorandum from Fannie Mae and Freddie Mac that expressed concerns with PACE liens
being primary on properties put most PACE programs on hold. There are some commercial PACE
programs operating around the country and a handful of residential programs that are operating
within the Fannie Mae framework.
The other major category of programs where initial capital can support more than one project over
time is loan loss reserve funds. Loan loss reserve funds use capital from LEAs and others to secure
private lending. In this program design, private banks and credit unions initiate and underwrite
loans, collect monthly payments, and pursue loans in default. The loan loss reserve fund is a pool of
money that is available to the lender in the case of a default—it covers some percentage of their loss
(usually 75 to 90 percent of the outstanding balance of the loan). This program design has several
attractive features. First, lending experts and not LEAs would make the loans. Second, money only
leaves the program in the case of defaults. Third, banks are willing to loan out more money than is
deposited in the loan loss reserve (sometimes 10 or 20 times what is in the reserve account), thus
making scarce capital go further. And, fourth, banks are willing to offer loans with lower interest
rates and/or longer tenors than their market loans because of the loan loss reserve pool. Banks are
generally hesitant to extend credit to riskier borrowers even with the presence of the loan loss
reserve pool because the lenders are responsible for some portion of the default, so this option is less
attractive for programs that wish to reach under-‐served populations.
Early data from energy finance programs suggest that the default rates of energy loans may be less
than the typical default rate for consumer loans, so both the revolving loan fund design and the loan
loss reserve design have promise for LEAs that can secure a single capital investment and then
maintain programs over time.
10 http://dsireusa.org/solar/solarpolicyguide/?id=26
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Works Cited i Recovery. Accessed online April 1, 2012. <www.recovery.gov>
ii Lovins, Amory. “Negawatt Revolution” Across the Board. 1990. PDF File. Accessed online April 1, 2012. <http://www.rmi.org/Knowledge-Center/Library/E90-20_NegawattRevolution> iii Stark, Anne. “Americans using more fossil fuels” News Release, LBNL. Nov 2, 2011. Accessed online April 1, 2012. <https://www.llnl.gov/news/newsreleases/2011/Nov/NR-11-11-02.html> iv Ibid. v Grande, Hannah, et al. “Unlocking Energy Efficiency in the U.S. Economy” McKinsey & Company. July 2009. Executive Summary. 1-2. PDF File. Accessed online April 1, 2012. vi Creyts, Jon, et al. “Reducing U.S. greenhouse gas emissions: How much at what cost?" McKinsey & Company. December 2007. Accessed online April 1, 2012. vii Ibid.vi
viii “Levelized Cost of Energy Analysis, version 4.0” Lazard. June 2010. PDF File presentation. Accessed online April 1, 2012. ix Ibid.vii
x Federal Energy Regulatory Commission, Midwest Energy Infrastructure Conference, Nov 2002. Accessed online April 1, 2012 via SEEA website <seealliance.org> xi Southeast Energy Efficiency Alliance. Accessed online April 1, 2012. < seealliance.org> xii “Southeast Energy Consortium”. Better Buildings Neighborhood Program. Accessed online April 1, 2012 <http://www1.eere.energy.gov/buildings/betterbuildings/neighborhoods/seea_profile.html> xiii Federal Energy Regulatory Commission, Midwest Energy Infrastructure Conference, Nov 2002. Accessed online April 1, 2012 via SEEA website <seealliance.org> xiv “Recovery Act Success” Department of Energy. Jan 2012. PDF File. Accessed online April 1, 2012 <http://energy.gov/downloads/successes-recovery-act-january-2012> xv “Recovery Act” Department of Energy. April 1, 2012. <http://energy.gov/recovery-act xvi “Background: ARRA and Recovery Through Retrofit” Department of Energy. Accessed online April 1, 2012. <http://www1.eere.energy.gov/buildings/betterbuildings/neighborhoods/history.html> xvii “Recovery through Retrofit” White House Council on Economic Quality. October 2009. PDF File. Accessed online April 1, 2012. xviii Ibid.IX xix “Our Partners” Better Buildings Neighborhood Program. Department of Energy. Accessed online April 1, 2012. xx “What is the Better Buildings Program” Better Buildings Neighborhood Program. Department of Energy. Accessed online April 1, 2012. Diagram created by Fraser, K. <http://www1.eere.energy.gov/buildings/betterbuildings/neighborhoods/about.html> xxi “About SEEA- Mission and Goals” Southeast Energy Efficiency Alliance. Accessed online April 1, 2012. <http://www.seealliance.org/about/mission.php> xxii Ibid.xxi
xxiii “Programs- Better Buildings” Southeast Energy Efficiency Alliance. Accessed online April 1, 2012. <http://www.seealliance.org/programs/better.php> xxiv “Neighbors can join forces to increase incentives” Department of Energy. Accessed online April 1, 2012. <http://www1.eere.energy.gov/buildings/betterbuildings/neighborhoods/seea_profile.html#neighbors> xxv Ibid.xxiii
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xxvi Local Energy Alliance Program. Accessed online April 1, 2012. <http://www.leap-va.org/> xxvii Fraser, Kathleen, and Glenn Barnes. The Future of Better Buildings Neighborhood Program’s Local Energy Alliances: Guidebook for Financial Sustainability Post-ARRA Funding. 2012. Print. xxviii Fuller, M. (2011, August 3). Lawrence Berkeley National Lab. (K. Fraser, Interviewer) xxix RePower Bainbridge. Accessed online August 1, 2011. <http://www.positiveenergybi.org/repowerbainbridge> xxx Energy Smart. Accessed online April 1, 2012. <http://www.energysmartyes.com/home> xxxi Ibid.xii xxxii Ibid.xii
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References The following reports, white papers and interviews set a baseline understanding and the foundation for this research and analysis: Adams, C. (2011, August 21). LEAP. (K. Fraser, Interviewer)
Barger, N. (2011, June 22). Energy Efficiency Services Coordinator, CESI. (K. Fraser, Interviewer)
Barnes, G. (2011, June-September). UNC-Chapel Hill Environmental Finance Center. (K. Fraser, Interviewer)
Brown, Marilyn and Gumerman, Etan. Energy Efficiency in the South. April 2010. Southeast Energy Efficiency Alliance. Online PDF Retrieved April 1, 2012. <seealliance.org> Byrnett, D. (2011, July 5). via email. (K. Fraser, Interviewer)
Clymer, J. (2011, July 11). DOE conference call presentation slides, Utility Partnerships, ICF International. Retrieved July 14, 2011, from Department of Energy : http://www1.eere.energy.gov/wip/solutioncenter/webcasts/default.html
Cordell, B. (2011, July 8). Executive Director, Sustainability Institute. (K. Fraser, Interviewer)
Dayton, D. (2011, July 6). CEO, CESI. (K. Fraser, Interviewer)
Fuller, Merrian, et al. Driving Demand for Home Energy Improvements. Lawrence Berkeley National Lab. Sept 2010. Online PDF Retrieved April 1, 2012 <http://drivingdemand.lbl.gov/> Holthoff, L. (2011, August 18). NEXT STEP. (K. Fraser, Interviewer)
Lawrence Berkeley National Lab. (2011, June 20). Using Qualified Energy Conservation Bonds (QECBs) to Fund a Residential Energy Efficiency Loan Program: Case Study on St Louis County, MO. Retrieved July 18, 2011, from Environmental Energy Technologies Division: http://eetd.lbl.gov/ea/emp/reports/ee-policybrief_062011.pdf
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“Our Insights: Organizational Structure; Sustainable Revenue Streams; Financial Incentives; Marketing; Pay for Performance; Energy Performance Contracting; Non-Profit Organizations; Utility Interaction; Workforce Development; IT Solutions” A White Paper Series. Clean Energy Solutions, Inc. Accessed online April 1, 2012. <http://ces1.squarespace.com/sustainable-reve/?SSScrollPosition=0>
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